South Africa’s major banks reported a durable financial performance in the first half of 2024 against complex operating conditions and elevated levels of uncertainty and combined headline earnings growth was only 2.5% at R56.8 billion, when compared with the previous year.
Headline earnings growth in previous years has been stronger, with for instance, the figure rising 13.8% to R113.2bn for the full 2023 financial year. And in the 2023 half year period combined headline earnings grew by 16.8% to R55.8bn compared with the first half of 2022.
“The start of 2024 was characterised by acute levels of uncertainty as nearly half the global population entered an election year. Globally, inflation remained sticky and slowed the anticipated pace of interest rate cuts. Regionally, several sub-Saharan African countries felt the combined impacts of socio-economic events, a complex El Nino weather pattern, subdued commodity prices and elevated debt levels — against the backdrop of sustained inflationary pressures and currency weakness in some territories,” PwC said on Friday in a report on the major banks.
In South Africa, electricity supply improvements and generally positive market reaction to the formation of a Government of National Unity were reflected in lower government debt costs and a stronger rand.
However, GDP growth in the first quarter was flat indicating muted household demand and businesses under pressure, marginally offset by second quarter GDP growth of 0.4%.
PwC South Africa Banking and Capital Markets Partner Rivaan Roopnarain said the major banks continued to demonstrate the durability of their businesses.
Key themes among the banks included intense focus on the rest of Africa outside South Africa, robust metrics with strong capital and liquidity levels and risk coverage and moderated impairment charges, particularly in South African retail lending portfolios.
Other key themes were a continued focus on cost management in a period where strategic targets of a 50% cost-to-income ratio were challenged by elevated inflation and volatile exchange rates, while the migration of customers to digital banking platforms and channels had moved from theme to certainty.
In addition, closely watched non-financial banking industry trends were coalescing around the fast moving areas of technology change, including the impact of generative AI, and climate transition.
“Bank management teams continue to view these areas as both opportunities and risks, while aware of the need to customise for the context of the local environments in which they operate. Increasingly, the major banks’ sustainable financing targets and reporting against them are becoming more clearly calibrated and prominent,” said Roopnarain.
The scale and competitiveness of operations in high growth African markets — and their earnings contributions — had emerged as an area of distinction for many of the major banks.
However, balancing market and sovereign risks with efficiencies was complicated due to factors such as increased cash reserving requirements and currency volatility in some territories. Currency volatility resulted in major banks’ foreign currency translation reserves reaching record levels, depressing group results.
Moderated impairment charges, particularly in South African retail lending portfolios, drove down the combined credit loss ratio to 100 bps from 110 bps in the first half of 2023.
Better credit trends were supported by slower inflows into early arrears, as a result of proactive customer assistance programmes and enhanced collection processes implemented by the major banks.
Higher impairments were evident within corporate lending portfolios driven by counterparty and industry specific risks and within sovereign asset portfolios beyond South Africa given the fiscal issues facing several African countries.
“On a combined average basis, the major banks’ credit loss ratio remains at the upper end of their average ‘through-the-cycle’ range,” Roopnarain said.
He said while prospects for the rest of 2024 remained complex and subject to significant uncertainty, consensus expectations for interest rate cuts across several territories provided a basis for optimism.
“The major banks’ GDP growth expectations in both SA and various other African presence countries remain cautiously optimistic,” he said.
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